Look no further than Apple to explain the retail woes here

Apple is often ignored by retailers and analysts looking to explain the current malaise hitting the electronics retailing sector in Australia. But since the first Apple retail shop opened here in June 2008, Apple has pinched close to $A2 billion in sales and well over $A400 million in profits from the Australian retailing sector.

It has grabbed sales and earnings from selling more of its own products direct to Australians, rather than continue selling through the likes of JB Hi-Fi and Harvey Norman. While the latter still sell Apple products, they and other retailers no longer have the same domination they had before June 2008. Apple has muscled in, expanding to 13 shops here, with six in Sydney, and a 14th is tipped for Adelaide later this year.

Add that to the other factors being advanced for the weak retailing climate, and you get a better understanding why the likes of Myer, David Jones, JB H-Fi, Metcash and Harvey Norman are doing it tough.

These other factors have included cautious consumers who are saving and looking for bargains; price deflation (caused by price cutting by big offshore makers, such as Sony, Panasonic and Samsung), to the internet and the high value of the Aussie dollar. In truth it’s all of those, plus the out-of-date retailing models these retailers have persisted with. In fact such has been the growth of Apple products through its shops that it undermines claims that Australian consumers have gone cautious or are continually looking for discounts. Apple doesn’t discount and Australians are paying full whack and more for iPhones and iPads (as a Parliamentary committee will be looking at).

That must be doubly galling to Australian retailers who are busy slashing prices and profit margins on other products to keep in the game.

Take for example, JB Hi-fi’s second profit warning in five months on Friday confirmed that with new guidance that puts net earnings at their lowest in three years. Perhaps the best guide is that Harvey Norman is 10 days late with its third-quarter sales update, after delaying its six months sales report two weeks in February. The profit and sales report for the six months to last December were weak, and JB Hi-Fi saw same shop sales down in the March quarter by 1.3%, which was a bit better than the 2.2% in its first half. JB Hi-Fi is still opening new outlets, but the company has been forced to slash profit margins by 2% to maintain sales. In fact it sees sales meeting its earlier guidance for the year at $3.1 billion, but it will do so at a cost to profits, which will fall below the level they were in 2009-10.

If Apple had not opened its 13 shops in this country, the likes of Harvey Norman, JB Hi-Fi, Myer, David Jones and a host of other outlets would have been riding the iPhone, iPad boom and not sharing those sales and profits with Apple. And, there’s a bit more. Apple is now taking the retail margin from its competitors, whereas before that shop opened in 2008, it was unable to capture that margin and was just another manufacturer, albeit one with products in high demand.

In a briefing with US analysts after last week’s March quarter profit and a filing with the SEC, Apple said two new shops were added in the quarter, making 363 in total. They were visited by 71 million people in the quarter, up from about 69 million a year. Each shop was visited by 18,000 people a week, which would make many larger retailers envious.

As of March 31, 2012, Apple said the retail segment had approximately 42,200 full-time equivalent employees and had outstanding lease commitments associated with retail space and related facilities of $2.8 billion.

Worldwide the shops lifted sales 38% to $US4.399 billion in the March quarter, from $US3.191 billion a year ago. Earnings surged to $US1.149 billion from $US782 billion.

For the first half of the year (the December and March quarters), Apple’s retail business generated sales of $US10.515 billion (earnings of $US3.003 billion) compared with sales of $US7.038 billion a year ago, with earnings of $US1.788 billion.

These sales are in addition to those Apple generates from selling into other retail channels, from computer, consumer electronics and department stores, as well as to business. According to limited reports, the company sold about $US4.8 billion of products in Australia in calendar 2011. By some estimates that could rise to more than $US5.3 billion or more this year.

Apple’s profit margin in the March quarter was 47% (it is forecast to fall to 41% in the current quarter as sales of iPhones slow from the first quarter record).

Of course the model of showcase/destination stores is nothing new. Most of the top luxury brands in clothes, cosmetics, handbags etc. have been doing the same thing for decades, ie. in addition to selling thru department stores etc.

Sony have been doing it for a long time too. But it seems Apple has outdone them all. Apparently Apple Stores, at least in the US, are the most profitable retail stores per sq metre of storespace in the US.

Microsoft have just begun rolling out copycat stores in an attempt to replicate the model. (Ha, Microsoft!)

So the fact that Apple products cost the same from a direct Apple retailer or an Apple onseller is a ringing endorsement of the dynamics of the market and competition delivering benefits to consumers then?

Retailers here face a difficult position because we don’t make
anything ourselves - so its a question of being a middle man for
other producers overseas. To make a comparison, one solution
to internet piracy from abroad is for Australian TV channels to
actually make content. Then its aired at the same time as it can
be uploaded, just like in the US, not three months before it is aired.

The main reason that Apple has muscled in so successfully is what happens when your phone is lost / damaged / stolen. In this case you can only buy a replacement from Apple at their online Apple store!!!
Happened to my partner just recently and neither of us could believe it - or the price!! ($900.00AUD!!!) No wonder Samsung etc. are outselling them up to 3 to 1 in most world markets.